So, I got all excited when I saw this thread, and then I remembered, "Oh, yeah, I graduated two days ago."
So I'm not technically a college knitter, but I was. I started knitting my freshman year and never looked back.
I'm with the person who said that knitting is a good method of procrastination.
Well, sometimes it worked that way for me. Sometimes I avoided studying for finals by knitting, though sometimes I let my knitting go by the wayside when I needed to study (I haven't knit at all in the past couple of weeks, between writing final papers and the hubbub of senior week and graduation).
One thing that was a bummer for me is that in my college's town (which was small), there was only one shop selling yarn, and it was expensive. So, as far as budget goes (and availability, if your situation is like mine), knitpicks is your friend!
Edit: As for where I kept it all -- a giant plastic bin. Big ol' purple thing that's 2' x 18" x 18" or something like that.